Why Europe may have to accept a 'sovereignty premium' for climate tech

Europe has long pushed for technologies that are green, competitive, and made locally. But there’s a growing acknowledgment in climate tech circles that this wish list carries a price tag.

If the region wants supply chain resilience in batteries, fuels, materials, and other critical clean tech building blocks, it may have to pay what investors are beginning to call a “sovereignty premium.”

"Globalisation has moved manufacturing to the most efficient place – China," says Torben Schreiter, partner at Extantia Capital. "But if we think about moving stuff back domestically to Europe or to the United States, we must accept a sovereignty premium to that, because there’s no way we can compete [with China] on price."

While the idea remains at its nascent stages, it’s slowly creeping into how investors think about the next decade of European climate tech.

The end of the ‘green premium’

For founders, Schreiter argues, the sovereignty premium behaves much like the now highly criticised green premium – the expectation that buyers would pay extra because a product was better for the planet.

"For the green premium, the willingness to pay up used to come mainly from a marketing or altruistic perspective," Schreiter tells Impact Loop. "The sovereignty premium might become a premium that is socially acceptable from the perspective that certain products cut Europe’s ties and dependencies to oil states and/or China."

A sovereignty premium could prove easier to justify to voters, taxpayers, and industrial buyers than sustainability alone, says Schreiter, although he’s adamant the concept will remain just that – a concept – unless European governments step in a create a regulatory framework that creates favourable market conditions for technologies of sovereign value to Europe.

"European society needs to make a fundamental decision to either pay up for energy/materials independence in the form of a sovereignty premium or remain dependent, with all that attached risk,” says Schreiter.